Regulatory and cost barriers are likely to limit biosimilar development and expected
savings in the near future.

In March 2010 Congress established an abbreviated Food and Drug Administration approval
pathway for biosimilars-drugs that are very similar but not identical to a reference
biological product and cost less. Because bringing biosimilars to the market currently
requires large investments of money, fewer biosimilars are expected to enter the biologics
market than has been the case with generic drugs entering the small-molecule drug
market. Additionally, given the high regulatory hurdles to obtaining interchangeability-which
would allow pharmacists to substitute a biosimilar for its reference product, subject
to evolving state substitution laws-most biosimilars will likely compete as therapeutic
alternatives instead of as therapeutic equivalents. In other words, biosimilars will
need to compete with their reference product on the basis of quality; price; and manufacturer's
reputation with physicians, insurers, and patient groups. Biosimilars also will face
dynamic competition from new biologics in the same therapeutic class-including "biobetters,"
which offer incremental improvements on reference products, such as extended duration
of action. The prospects for significant cost savings from the use of biosimilars
appear to be limited for the next several years, but their use should increase over
time because of both demand- and supply-side factors.

Professor Grabowski specializes in the investigation of economics in the pharmaceutical
industry, government regulation of business, and the economics of innovation. His
specific interests within these fields include intellectual property and generic competition
issues, the effects of government policy actions, and the costs and returns to pharmaceutical
R&D. He has been publishing research papers for over four decades, from his earlier
work, “The Effects of Regulatory Policy on the Incentives

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